Energy Market Watch: Hot! Hot! Hot! Edition

The August Markets Watch arrives to find it’s hot almost everywhere. China. South Korea. New Zealand. Much of Europe. And, of course, a large swath of the U.S. In Fresno, California, for instance, high temps have been in the triple digits for 22 consecutive days. In aptly, but unfortunately, named Death Valley, July represented the – wait for it – hottest month ever recorded on Earth.

Of course, the extraordinary heat has enormous implications for energy markets well beyond August. But, for now, let’s find just a bit of shade and focus only on energy-related reports over the next 30 days.

Aug. 2, 9, 16, 23 & 30 – EIA Natural Gas Storage Report

Extraordinary heat is a problem because supply is generally predictable (beyond outages or major disruptions), while demand is notoriously unpredictable. Enter, August. Everyone expects August to be hot, but just how hot is important for natural gas prices. If temperatures are higher than normal, air conditioners run on overdrive and natural gas demand spikes as gas-fired power plants generate electricity.

Other factors can complicate the equation, though. Let’s say:

August is unusually hot, but…

the wind is blowing and…

the affected region has a large number of wind and solar installations…

…the impact to gas could be much lower.

Thankfully, those complicated equations are distilled into the convenient weekly storage number the EIA publishes each Thursday. Expect natural gas prices to trade accordingly.

Aug. 3 – U.S. Employment Data

In case you haven’t heard, U.S. unemployment is low. So low, in fact, it could soon reach a level not seen since the late 1960s. This comes after a decade-long decline that followed ~10% unemployment and the Great Recession. An argument can be made that labor force participation rate, real wage growth and other metrics paint a more nuanced picture. But, when individuals look for work and find it, that’s good for the economy.

With unemployment below 4%, economists wonder if that figure can realistically go much lower. The answer matters for energy because unemployment levels typically correlate to key energy demand metrics, e.g. gasoline consumption from travel and energy demand for heating and cooling.

Aug. 3 – Trade Balance

It’s true the trade balance sums up a huge aspect of economic activity. But, unless you’re a part-time currency trader, you probably haven’t given it much attention. At least until recently. President Trump has elevated trade balance data to the top of his economic policy platform.

Since taking office, President Trump has cited a negative balance of trade with several trading partners – from China to the European Union to our neighbors in Canada and Mexico. The economic approach to reverse this perceived imbalance has brought its share of criticism, including from within the President’s own party. But there’s no arguing that U.S. trade data is worthy of some extra attention in the current political climate. Beyond the macroeconomic focus, it has real implications for energy (check out our recent blog on trade implications for energy), and directly affects the dollar’s value to other currencies, which ties directly to energy prices.

Aug. 31 – U.S. Petroleum Supply Monthly

The U.S. EIA reports its comprehensive set of crude and product data on August 31. That arrives with the U.S. crude industry in the spotlight on the global stage as preliminary data shows U.S. oil producers recently lifting crude supply to more than 11 mmbbl/d. As the name implies though, that data remains preliminary until it is confirmed by the more definitive monthly report. If confirmed, the figure would mark a new record high for U.S. crude production. The U.S. would easily outproduce Saudi Arabia and only narrowly trail Russia as the world’s largest oil producer.

The monthly report also offers greater insight into import and export flows for refined products. These figures can ultimately impact prices at the pump for U.S. consumers.